South Africa and the African Growth and Opportunity Act I : Much ado about chicken

South Africa and the African Growth and Opportunity Act I : Much ado about chicken

Andrew Barlow |
Dec 02, 2015

A fifteen-year poultry trade dispute between South Africa and the US came to a head recently. Relations thawed, and the US gave our government a 60-day ultimatum in which to remove trade barriers to US bone-in chicken cuts that have blocked them from the SA market since 2000. But US concerns over South Africa's future commitment to meeting eligibility criteria are not limited to trade. The protection of existing investment through the legal recognition of property rights, as well as the creation and conservation of an environment conducive to foreign investors, are at least as important to the US government. In this pair of briefs, I begin by analysing the context the ultimatum was delivered in. I look at the nature of Agoa and our commitments under it, I chart the history of the trade dispute, and I consider the grounds and motivations underlying each side's actions. In the second brief, I examine the two most pressing issues impeding our future inclusion under Agoa. I conclude that US patience has likely run dry, and our future eligibility is far from certain.

The US presidential notification

On 5 November 2015, President Obama wrote to Congress that he was giving a 60-day advance notification of his intent to suspend the application of duty-free treatment to all AGOA-eligible goods in the agricultural sector from South Africa. He wrote:

I am taking this step because South Africa continues to impose several longstanding barriers to U.S. trade, including barriers affecting certain U.S. agricultural export, and thus I have determined that South Africa is not making continual progress to the elimination of barriers to United States trade and investment as required by section 104 of AGOA.

US ambassador to South Africa, Patrick Gaspard, warned shortly afterward that they would consider no later than 1 March 2016, extending suspension of duty-free treatment on additional AGOA-eligible goods beyond those in the agricultural sector, should unsatisfactory progress have been made toward removing the barriers to US trade.

This threat – and it is a threat – is not one to be taken lightly. Consider that in 2013, the US domestic market amounted to 26.7% of the World’s total consumer market. [1] Consider further that China, the second largest, followed at 7.72%. [2] Given that South African exports to the US under AGOA amounted to $1.75 billion last year [3] – around 35% of the total $5 billion or so worth of goods exported in 2014 – the ramifications of non-compliance could derail many crucial sectors of the South African economy.

It has produced results. On the 13 November, South Africa and the United States signed the Protocol for Poultry Meat and Day-Old Chicks. This Protocol sees South Africa lift the avian flu ban on US poultry and marked the first, and most significant, step toward meeting the eligibility criteria required of us for continued preferential access to the US market under AGOA. Trade and Industry Minister Rob Davies appears confident that all outstanding issues will soon be resolved: “we are well on track to conclude all the regulatory issues within the deadline”. [4]

Obama’s 60-day ultimatum is the result of an ‘out-of-cycle’ review of South Africa’s eligibility for AGOA special treatment initiated on 21 July 2015 and mandated by Congress in the context of the Trade and Preferences Extension Act passed in January of this year.

This was included in the Act at the behest, principally, of Senator Johnny Isakson (Georgia) and Senator Chris Coons (Delaware) lobbying on behalf of the poultry industry, which is substantially represented in both states. South Africa’s inclusion in AGOA has, however, been the source of running controversy in Washington – not only among those with a vested interest in the beef, pork and poultry industries, but also among those who consider us simply too developed to receive such preferential treatment.

African Growth Opportunities Act (AGOA)

AGOA is a non-reciprocal trade agreement, enacted in 2000 as part of the US Trade and Development Act, that gives – in conjunction with the trade preferences under the Generalised System of Preferences (GSP) – qualifying Sub-Saharan Africa (SSA) countries duty free treatment on over 7,000 marketable goods – of which about 800 are agricultural. [5]

Designed to help SSA countries open their economies, build free markets, stimulate growth, and facilitate the region’s integration into the global economy, AGOA gives eligible nations incentivised access to the world’s largest consumer market.

To be eligible for AGOA-beneficiary status, a country must have established or be working toward establishing a market-based economy, the rule of law and political pluralism. It must demonstrate a commitment to eliminating poverty and providing healthcare and education for its citizens. It must have structures in place that function to undermine corruption and bribery. It must have ethical labour laws and standards – i.e. a minimum wage and minimum age for employment. It must not commit gross human rights abuses. [6] And there is a ceiling on its per capita income. Seychelles has recently gone through the ceiling. South Africa remains well below.

All of these criteria are in the best interests of any country in any case. They are common sense benchmarks of a free, fair and functional democracy and there should thus be the political will to comply with them regardless of the AGOA trade benefits.

Unfortunately, in Sub-Saharan Africa, narrow interests and authoritarian ambitions have frequently taken precedence over economic security and national welfare: think Zimbabwe, Sudan and, most recently, Swaziland. AGOA-beneficiary status therefore provides an economically compelling incentive to enact political reform where needed.

It should be fairly clear that an economically secure and politically stable SSA region is in line with wider US-interests. However, the following two criteria must also be met that directly affect the US. Firstly, a country must not be engaged in activities that work to undermine US national security or foreign policy interests. Secondly, a country must work towards eliminating barriers to US trade and investment. [7] This second requirement is reasonable enough, in light of the massive potential trade benefits that they are offering in return.

The origins of United States exasperation

In 2000, the same year that AGOA came into force, South Africa introduced an extremely stringent anti-dumping duty on US bone-in chicken cuts. At R9.80/kg, this duty rendered US cuts twice as expensive as other foreign exporters, [8] and effectively blocked US chicken exporters for fifteen years from the SA market by totally precluding any potential profitability.

In 2003, following the detection of a Bovine Spongiform Encephalopathy (BSE) positive cow in Washington State, South Africa enacted a ban on all ruminant products of US origin. This extended as far as ruminant meat-based pet food. It has completely blocked all US beef exporters from the SA market for twelve years.

In June 2013, South Africa blocked US pork exports on the grounds of a restriction concerning Porcine Reproductive and Respiratory Syndrome (PRRS) introduced the year before. Prior to this, and despite US concessionary efforts, South Africa allowed only a restricted number of approved cuts – but excluding the shoulder cut, widely known to be the “priority for the US [pork] industry”. [9]

Finally, late in 2014, our Department of Agriculture passed a complete ban on all US poultry products in response to sporadic outbreaks of avian influenza in US flocks. The US pushed continuously for the ban to be regionalised so that poultry producers located in unaffected areas could continue to export to the SA market. These requests fell on deaf ears, despite the blanket ban being inconsistent with World Organisation for Animal Health standards [10] and the US avian flu being brought under control.

On 4 – 5 June of this year, government officials and industry delegates from both sides met in Paris to resolve the trade dispute, facilitate the resumption of US exports of bone-in chicken cuts to the South African market and thus ensure South Africa was included in the extension of AGOA under the Trade Preferences Extension Act 2015. An annual quota of 65,000 metric tonnes – of bone-in chicken imports to the SA market, free of anti-dumping tariffs – was agreed to, which ensured South Africa was not excluded from AGOA. Minister Davies framed it as “a commendable effort by the poultry industry in the interest of the South African economy”. [11]

Yet three months later, despite the success of the Paris agreement being widely touted by our government, no significant progress had been made towards implementing the necessary legal framework required for the 65,000 tonne quota. Nor had any steps been taken toward a total or partial rescission of the avian flu ban. Coons and Isakson wrote an open letter to President Zuma on 11 September, clearly exasperated at the continued feet dragging. They implored him to ensure that the relevant processes were set in motion, ending it by reminding him that “a review of South Africa’s eligibility under [AGOA] is presently underway”. [12]

There are wider trade and investment disagreements between South Africa and the United States. These will be discussed in a second brief. But it has been the anti-dumping duties surrounding US poultry that precipitated this impasse.

The South African government felt that anti-dumping measures were necessary to prevent the domestic market from being flooded by what it saw as an unfairly priced product that the local poultry industry could not compete with. US exporters viewed them as deliberately and unjustly discriminatory, and the US government became increasingly frustrated at South Africa’s reluctance to remove them, given the latter’s continued – and controversial – inclusion in AGOA and the preferential access to the US market that this entails.

South Africa vs. US justifications

There were legitimate concerns underlying the actions of our government and poultry industry. Consumer preferences in the US and EU markets, underwritten by their relative wealth and the conception of white meat as a health food, have meant that breast meat can be priced at a premium. In many cases the price of the breast meat is sufficient to cover its production cost, and the cost of the entire carcass, and still turn over a profit. [13]

Bone-in chicken cuts, thus, are almost considered by the US and EU poultry industry as waste products. Moreover, poultry farmers in both the US and EU are heavily subsidized. These two factors have meant that US bone-in chicken cuts can be exported at very low prices. In fact, a 2014 industry report to Congress remarked that US chicken exporters are able to give SA consumers “an option to purchase U.S. poultry that is one-third the cost of South African chicken”. [14]

On the other hand, consumer preferences for chicken in South Africa are radically different. One of the most popular dishes in South African townships is known as ‘Walkie-Talkies’ – spiced chicken heads and feet grilled over hot coals. Differing cultural attitudes toward chicken and domestic economic realities mean that the local poultry industry is not given the same ability to charge a premium on any one cut of the chicken.

This is why the US bone-in cuts have been considered anti-competitive. US exporters are privileged by consumer preferences in their own market and the financial security afforded by government subsidies, and our local industry is subsequently unable to compete.

However, the US poultry industry had equal reason to feel hard done by. The anti-dumping duties imposed on US exporters were punitive in that they were uniquely heavy. The South African Poultry Association, SAPA, had successfully lobbied for anti-dumping duties to be effected in July 2014 on German, Dutch and British bone-in cuts. Yet, in the case of the Netherlands and the UK, this duty was set only at 22.8 % and 22% respectively (less than the standard 37% import duty US exporters face before the special R9.80/kg duty), and moreover, the duties were set to expire at the beginning of January 2015 – just six months later.

In trade negotiations, there must always be give and take. A quota of 65 000 metric tonnes for bone-in chicken will have consequences for South Africa’s chicken industry. It will be the price we pay for much more valuable benefits, now that the avian health Protocol off has been completed.

Wider issues

It would be incorrect to suppose that resolving the chicken, pork and beef issues removes all the conflict between South Africa and AGOA. The investigative report that led to President Obama’s letter to Congress reveals other issues at stake. These will be discussed in a second brief.